Ashika Monthly Insight Flip July 2016

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JULY <strong>2016</strong> STOCK PICKS Godrej Properties Ltd CMP: Rs 365 Rating: BUY Target: Rs 415 Company Information Sector Real Estate Price (Rs.) 336 Rating Buy Target 415 Time Frame 12-18 months BSE Code 533150 NSE Code GodrejProp Bloomberg Code GPL IN Market Cap (Rs. Cr) 7910 Outstanding shares(Cr) 21.6 Free Float (%) 29.12 52-wk Hi/Lo (Rs) 375/239.4 NSE 1yr volume 49252693 Face Value (Rs.) 5 BVPS (Rs.) 100.26 400 300 200 100 0 Jun-15 Source: Bloomberg Jul-15 Godrej Properties share price Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Share holding pattern as on Mar <strong>2016</strong> (%) Jun-16 Company Profile Godrej Properties Limited (GPL) is an India-based real estate company (headquartered in Mumbai) and is a subsidiary of Godrej Group. The company has projects in approximately 12 cities and it is involved in the development of residential and commercial real estate. Its residential portfolio consists of accommodations of varying sizes. The commercial portfolio includes building office space catering to blue-chip Indian and international companies, IT parks catering to the requirements of IT/ITES companies and retail space. Godrej Properties has been expanding its footprints at a fast pace and has sold real estate worth US $ 2.1 bn over the last four years. The real estate prices have been stagnating over the last two years on slowing consumer demand, rising inventory levels and delay in fast-tracking of project approvals. On the contrary, Godrej Properties have been performing relatively well thanks to the attractive positioning of its 50 projects across 12 cities. From the graph below, GPL has clearly outperformed the BSE Realty Index since its IPO listing by giving around +28% returns versus -68% return of BSE Realty Index. This clearly highlights the strength of the company’s performance despite weak market conditions in the realty market. Others 11.6 Promoters 46.5 DII 5.6 FII 36.4 Particulars (in Rs. Cr.) FY14 FY15 FY16 FY17E Revenue 1179.2 1843.1 2504.5 2844.5 Growth (%) 0.0 56.3% 36% 14% EBIDTA 276.8 247.2 335.4 541.3 EBIDTAMargin(%) 23.5% 13.4% 13.4% 19% Net profit 159.4 190.9 231.1 324.7 Net Profit Margin (%) 13.5% 10.35% 9.2% 11.4% EPS(Rs) 8.62 9.58 10.97 15.37 Consensus Estimate: Bloomberg GPL benefits from attractive positioning of its projects across the country enabling it to outperform its peers: The outperformance of GPL with respect to its peers has been due to its prudent management of financial investments 8
FDI - WINDOW OF OPPORTUNITY and right selection of projects across different cities. The company has benefitted largely due to its positioning of projects mostly across tier 1 cities -Mumbai, Bengaluru, NCR region, Kolkata, Hyderabad and Chennai comprising ~80% of the total projects. This has helped the company to withstand the slowdown in the real estate markets. GPL recorded the highest booking value in FY16: In FY16, Godrej Properties recorded a robust top line growth of 42% YoY at Rs 2,728 cr. However, Net profit was higher by only 21% YoY at Rs 231cr mainly driven by cost escalation on some old projects and a slightly adverse Cities Mumbai New Project Launches in FY16 Projects Godrej Prime, Godrej Vihaa, Godrej Sky,The Trees- Residential Phase 1 Gurgaon Godrej Icon, Godrej 101 Chennai Bangalore Mumbai Godrej Azure Godrej Avenues New Phase Launches in FY16 The Trees Residential Phase 2, Godrej Platinum Ahmedabad Godrej Garden City Nagpur Chennai Pune Godrej Anandam Godrej Palm Grove Godrej Prana, Godrej Infinity In Mumbai, ‘The Trees’ project in Vikhroli in residential space and Godrej BKC project in commercial space have been the most successful ones by GPL. The company has sold 150 out of 230 flats of ‘The Trees’ project under phase 2 project and phase 2 project achieved 9% higher pricing than Phase 1 project. Under the ongoing Vikhroli’s ‘The Trees’ project, the company plans to extend the project and launch 4th tower of platinum project, phase 3 of residential, 2nd office tower and also a hospitality & retail component. This project has been quite successful for the company as phase 2 achieved higher pricing this year. Godrej BKC is also ahead of schedule and is expected to fetch more Rs 1500 cr in the coming quarters, according to the management. The company is now extending its footprints into Noida and Gurgaon too. GPL’s capital light model gives it a competitive edge: According to the management, GPL’s business model has been capital light. It invests up to a maximum of 20% of sales mix. The company recorded 88% YoY growth in its bookings and booking value stood at Rs 5,038 cr, the highest quoted value by any listed real estate player in FY16. The company delivered 6 million sq. ft. in FY16, a growth of 71% over the previous year. This is a milestone achievement by the company. GPL’s cash collection also went up by 60% to Rs3200 cr. GPL’s launch of projects at prime locations, effective marketing strategy and timely delivery of its projects has been the company’s strength. Below are the companies’ detailed projects and phase launches over the next two years: Cities Bangalore New Project Launches in FY17 Projects Godrej Eternity NCR Sector 150 – Noida; Godrej Platinum – Okhla Mumbai Pune Chennai Mumbai Ghodbunder Road – Thane, Godrej Park New Phase Launches in FY17 Godrej Infinity, Godrej Prana Godrej Azure, Godrej Palm Grove Godrej Vihaa, The Trees, Godrej Platinum, Godrej City Ahmedabad Godrej Garden City Nagpur Godrej Anandam investment in land value and has a profit/revenue sharing model. The company also takes a fee income and promotes if the projects are doing well. This not only hedges the company on the downside if projects gets stalled or have less profit but also gives them a benefit in the form of promotes if the projects are doing well. GPL’s declining borrowing costs and termination of dividends payments for expansion plans augurs well: GPL’s average borrowing cost has come down by 112bps YoY to 10.06%. The company has also held back dividends this year as it aims to reinvest in its high return business in order to maximize the shareholder value in the long run. The recent change in government’s rule on dividend taxation also led to this call for holding back dividends. Recently passed Realty Bill will benefit the organized players like GPL: The recently passed Realty Bill will boost the investors’ confidence on account of higher transparency, greater cash flow predictability, faster project 9
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